1. The Devine Beer Company is considering replacing a forklift used for inventory storage. It is considering two alternative forklifts:

• Forklift A:
  • Cost $100,000 to purchase and install (both depreciated)
  • Lift has 5-year life
  • The investment will be depreciated over 5 years to a book value of 0.
  • Devine expects the machine to have no value at the end of 5 years.
  • Removal expenditures are expected to be negligible (0)
  • Machine Cost $60,000 per year to operate
  • Tax rate = 40%
  • Cost of capital = 12%
• Forklift B:
  • Cost $150,000 to purchase and install (both depreciated)
  • Lift has 10-year life
  • The investment will be depreciated over 8 years to a book value of zero.
  • Devine expects the machine to have no value at the end of 10 years.
  • Removal expenditures are expected to be negligible (0)
  • Machine Cost $100,000 per year to operate
  • Tax rate = 40%
  • Cost of capital = 12%

Question: Which machine should Devine select?